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August 27, 2007

A Different Take On The Subprime Loan Fiasco

Good Morning Gentle Readers:

Lots of fall out and hand wringing lately over the creative financing techniques of the subprime mortgage markets and the wave of defaults that has swept from coast to coast in the wake of interest rate adjustments that ratcheted once-affordable house payments to levels well beyond some borrower's ability to pay. In his Chicago Tribune piece on Charles Shumer's Big Fix for the subprime problem Steve Chapman notes that......

the fact that some borrowers are behind on their payments is no
condemnation of the system that furnished them credit. They are in the
subprime market, after all, because their credit history or income
suggests they are bad risks, and it's no shock to find that some of
them turn out to be exactly that.

What was once the savior of renters looking for a chunk of the American Dream has now become the whipping boy as defaults surge and the housing market stagnates.

In the old days, financial institutions that refused to lend to people
with low incomes or imperfect credit were accused of victimizing the
needy. Today, financial institutions that make many loans to those same
people are found guilty of the same crime.

It turns out that 86% of all subprime loans are being paid on time and in full, every month and the primary beneficiaries of subprime loans have been minorities that would otherwise have nothing but a stack of canceled rent checks.

Schumer, however, would overrule their judgment and dash their dreams.
They can take deep consolation in knowing it's for their own good.